External stakeholder effects concern the impact of corporate actions on persons or groups outside the firm. This might involve such things as the negative effects of a product recall, the positive effects of community related corporate philanthropy, or assuming the natural environment as a stakeholder, the effects of toxic waste disposal.
The main focus of measurement is the third level of the CSR model. To determine if “CSR makes a difference”, all of the stakeholders relevant to an issue or complex of issues must be included in any assessment of performance. There are, again, three main categories:
Internal stakeholder effects – those that affect stakeholders within the firm. An examination of these might show how a corporate code of ethics affects the day to day decision making of the firm with reference to social responsibility. Similarly, it can be concerned with human resource policies such as the positive or negative effects of corporate hiring and employee benefits practices.
External institutional effects refer to the effects upon the larger institution of business rather than on any particular stakeholder group. For example several environmental disasters made the public aware of the effect of business decisions on the general public. This new awareness brought about pressure for environmental regulation which then affected the entire institution of business rather than one specific firm.